The Finance Bill 2013 has proposed that each sale of immovable property now subject to TDS at 1%. The finance minister has introduced this new provision by inserting a new Section 194IA with the current TDS provisions. This section provides that 1% to be deducted by every buyer from the consideration payable to seller for transfer of immovable property (other than agricultural land), if the consideration paid or payable for the transfer of such property is equal to or exceeds Rs. 50 lacs. The reason for introduction of Section 194IA is to track real estate transactions that are not being reported.
These provisions were also introduced in Finance Bill, 2012 but due to much hype and cry they have been withdrawn. The same provisions introduced earlier has been now simplified and reintroduced in the Finance Bill 2013. They are in line with the existing provisions of Income tax Act, that requires tax is to be deducted at source by an assessee on certain specified payments made to residents by way of interest, commission, salary, rent,etc. Likewise, the buyer has to deduct tax while purchasing an immovable property from a non-resident (U/S 195). These provisions are also applicable on compulsory acquisition of certain immovable properties (U/S 194LA).
The ‘Immovable Property’ u/s 194IA means:
- any land (other than agricultural land); or
- any building; or
- part of a building.
Section 194IA will be applicable on every transaction from 1st June, 2013.
The difficulties in the implementation of this TDS provision is as under:
- Obtaining TAN number for this one time transaction;
- Filing of quarterly return of TDS and mention PAN of the seller;
- Deposit tax within the specified time limit;
- Issue TDS certificate to the seller; and
- May be scrutinized by the TDS officer
However, if the seller does not provide PAN than tax will be deducted at a higher rate of 20% instead of 1% due to overriding provision of section 206AA of Income Tax Act.
The proposed TDS provision u/s 194IA will have significant impact on cash flow issues of the real estate industry as the TDS is required to be deducted on gross transaction value rather than net gains. This will ultimately increase the interest cost for the industry, resulting in contributing to the increase of cost of the property for the general public.
However many clarifications are required before the provision would be enacted in Finance Act 2013, such as where the assessee avails benefit of exemption from capital gains under Section 54 to Section 54F, than will there be relief from TDS. Similarly clarification is required regarding the applicability of the provision of the proposed section in case of transfer/assignment of mere booking rights acquired by an assessee.
The good intent of introduction of the proposed section of curbing the under reporting or non-reporting of real estate transactions will find larger acceptability if the above concerns are also addressed when the Bill is passed.